Investment planning during retirement is not the same as investing for retirement and, in many ways, is more complicated. Your working years are your saving years. Typically, a worker’s main source of income is from wages. Wage earners experience some protection against inflation by receiving a raise in pay periodically. Their retirement objective is to grow retirement savings as much as possible. To that end, and because they have time to recover from losses, workers are able to put some money in higher risk investments.

Retirees, on the other hand, have entered their spending years. Their sources of income may include Social security, employer pensions, personal savings and assets, and perhaps some wages from working part-time. Their objective is to derive sufficient income to maintain their chosen lifestyle and to make their assets last for the rest of their lives.

This can be a tricky balancing act. Uncertainty abounds—you don’t know how long you’ll live or whether rates of return will meet your expectations. Your income may be fixed, allowing inflation to erode its purchasing power over time, which may cause you to invade principal to met day-to-day expenses. Or, your retirement plan may require that you make minimal withdrawals in excess of your needs, depleting your resources and triggering taxes unnecessarily. Further, your ability to tolerate risk is lessened – you have less time to recover from losses, and you may feel less secure about your finances.

How should you manage your investments during retirement given the above complications? The answer is different for everyone. You should tailor your plans to your own unique circumstances, and you may want to consult a financial planning professional for advice.

Choosing a sustainable withdrawal rate A key factor that determines whether your assets will last your entire lifetime is the rate at which you withdraw funds. The more you withdraw, the greater likelihood you’ll exhaust your resources too soon. On the other hand, if you withdraw too little, you may have to struggle to meet expenses and/or you could end up with assets in your estate, part of which may go to government in taxes. It is vital that you estimate an appropriate withdrawal rate for your circumstances, and determine whether you should adjust your lifestyle and/or estate plan. An appropriate withdrawal rate depends on many factors, including the value of your current assets, your expected rate of return, your life expectancy, your risk tolerance, whether you adjust for inflation, how much your expenses are expected to be, and whether you want some assets left over for your heirs. Fortunately, you don’t have to make a wild guess. Studies have tackled this issue, resulting in the creation of tables and calculators that can provide you with a range of rates that have some probability of success. A financial planning professional can help you with this.

Withdrawing first from taxable, tax-deferred, or tax-free accounts – most retirees have assets in accounts that are taxable (e.g. CDs, mutual funds), tax-deferred (e.g., traditional IRAs) and tax-free (e.g., Roth IRAs). Given a choice, which type of account should you withdraw from first? The answer, it depends. (Caution: Roth IRA earnings are generally free from federal income tax, but may not be free from state income tax.)

For retirees who do not intend to leave an estate to beneficiaries, the answer is simple in theory: Withdraw money from a taxable account first, then a tax-deferred account, and lastly, a tax free account. This will provide for the greatest growth potential due to compounding. In practice, however, your choices, to some extent, may be directed by tax rules. Retirement accounts, other than Roth IRAs, have minimum distribution requirements. In general, you must begin withdrawing from these accounts by April 1 of the year following the year you turn 70 ½. Failure to do so can result in a 50 percent excise tax imposed on the amount by which the required minimum distribution exceeds the distribution you actually take.

Retirees who will have an estate – for retirees who intend to leave assets to beneficiaries, the analysis is more complicated. You need to coordinate your retirement plan with your estate plan. If you have appreciated assets, it may be more advantageous for you to withdraw from your tax-deferred and tax-free accounts first. This is because these will not receive a step-up in basis at your death, as many of your other assets will. This may not always be the best strategy, though. If you intend to leave your entire estate, for example, it may be easier to withdraw from taxable accounts first. This is because spouses are given preferential treatment with regard to retirement plans. A surviving spouse can roll over retirement plan funds to his or her own IRA or retirement plan, or, in some cases, may continue the deceased spouse’s plan as his or her own. This can be a complicated issue and should be discussed with your financial adviser.